Viewpoint - 29/05/2020

Failing to prepare is preparing to fail

Rent and service charge income is a vital source of revenue for commercial landlords. With COVID-19 significantly impacting the bottom line, how can you optimise collection performance?

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Rent and service charge income is a vital source of revenue for commercial landlords. However, since the Government’s introduction of social distancing measures to slow the spread of COVID-19, many tenants have struggled to keep up with their payments. This dramatic reduction in rental income is having a knock on effect on collection performance and, ultimately, the landlords’ bottom line.

Relief for tenants

While tenants were offered some relief in the form of the Coronavirus Act which introduced a moratorium on forfeiture for non-payment and protection against aggressive collection tactics, landlords have been left bearing the cost.

As the all-important June quarter day approaches, our Property and Asset Management experts share their top tips for optimising collection performance during the current challenging climate.

Active engagement

Active engagement with occupiers, as always, is the first and most advantageous option for both parties. Since lockdown began, we have seen occupiers approaching landlords to ask for assistance in mitigating their financial position, either through rent deferment, rent reductions and monthly, as opposed to quarterly, rent payment terms. Many tenants are providing financial information and cash flow projections to support their requests in a professional and transparent manner. Others are simply refusing to pay rents or are challenging service charges. Some are completely disengaged.

Most leases do not provide for reductions in rent. This can only be negotiated by agreement between the landlord and the occupier and, while each request can only be dealt with on a case by case basis, one thing is very clear; early engagement and dialogue is always the best option. Once dialogue ceases you are inevitably moving towards a breakdown of communication and ultimately a stalemate position by both parties. This is never ideal and plays to the principal of who breaks first.

Strong performance

We manage a diverse portfolio of assets on behalf of our clients and are responsible for 14,000 separate leases on over 5,700 commercial properties across the UK and Ireland.

To date we have seen a strong collection performance across the entire portfolio. As expected, the retail funds were slightly less favourable than any of the other asset classes which showed an average 71.17% recovery at 29 days past the due date but, given the wider social and economic backdrop, this is still a significant achievement.

Prepare, prepare, prepare

While commercial landlords are naturally anxious about the looming June quarter, we are proactively preparing our teams in order to safeguard our clients’ financial position.

  • Updating databases to reflect any agreed adjustments
  • Sense checking Rent Charging Reports for accuracy
  • Pulling forward timelines to ensure adequate lead-in times
  • Issuing pre-quarter reminders to all occupiers in advance of the due date
  • Processing payments in advance of the June quarter day
  • Collaborating with property managers to identify potential issues before they arise

As the late, great Benjamin Franklin said “By failing to prepare, you are preparing to fail”. Our teams may be at home, but we are ready and we are prepared.

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